April 2024

Unraveling other disappearance–the feedlot inventory fudge factor

Supply and demand drive cattle prices. USDA’s National Agricultural Statistics Service compiles a wealth of information on cattle supply from surveys of producers and publish it in Cattle on Feed reports.
Using a balance sheet approach ensures that estimates are as accurate as possible. Cattle on feed at the beginning of the month, plus placements, minus fed cattle marketings and other disappearance should equal cattle on feed at the beginning of the next month.

Other disappearance includes death loss, cattle movement from feedlots to pasture, and shipments to other feedlots for further feeding. Cattle Price Reactions to Cattle on Feed Reports can be large. That makes accounting for even subtle inventory changes important.

Feedlot flexibility complicates head counts

During January 2024, other disappearance from US feedlots with a capacity of 1,000 head or more totaled 81,000 head (Figure 1). This was 18,000 head or 29% above January 2023 and the highest since October 2014. February 2024’s other disappearance totaled 56,000 head, 3% below February 2023.

Figure 1. Other disappearance.

USDA asks survey respondents to only include "steers and heifers being fed a ration of grain, silage, hay and/or protein supplement for the slaughter market that are expected to produce a carcass that will grade select or better" in their on-feed inventories. This hopefully keeps cattle intended to go to pasture from appearing on cattle on-feed inventories. Those cattle will be included in placements when they go to a finishing feedlot and then on that feedlot’s inventory.

Similarly, feedlots backgrounding cattle for sale as feeders, or for further finishing in another feedlot, should not include these cattle in their on-feed inventory. USDA will include those cattle as placements when they go into a finishing feedlot. Including them as on-feed inventory in the backgrounding lot would overstate market-ready and soon to be market ready cattle supplies. If backgrounding cattle were incorrectly included in on-feed inventories, they would not appear as fed cattle marketings when they were sold as feeders or finished in another feedlot. They would end up in the selling or transferring feedlot’s other disappearance. The larger the other disappearance, the more complicated the supply analysis becomes.

One exception to only including cattle intended for slaughter in the on-feed inventory may exist.

Producers sometimes pull heifers out of feedlots for breeding. Think of these as two-way heifers–they are available for finishing or breeding. They should be included in on-feed inventories until they go to pasture. Then they will appear in other disappearance. This is why other disappearance usually peaks in May each year as grass becomes more available.

Feedlots developing heifers and selling them as replacements is not new and is not widespread, but is a business opportunity. This is especially the case when replacement heifer values are high.

Clue on cyclical expansion pace

Heifers moving out of feedlots for breeding will not hasten expansion significantly. At this point the question should not be when will producers start rebuilding the herd? Rather, it should be when will producers stop liquidating?

Feedlots developing more heifers would help explain why both heifer retention for beef cow replacement and heifer slaughter are both low but the number of heifers on feed is high (Figure 2). The next Cattle on Feed report will have the quarterly breakdown of steers and heifers on feed as of April 1, 2024. That will give clues on heifer disposition.

Figure 2. Heifers on feed as a percent of total cattle on feed.

Conditions can change marketing plans

Feedlot closeouts were deep in the red in December and January. Marginal cost of gain changes rapidly. In addition to feed, interest and out-of-pocket yardage costs are included in marginal cost. Delays in marketing, at over 8% feeder cattle loan interest rates, are not insignificant. Marketing cattle sooner saves costs. Furthermore, opportunity cost of pen space was high as summer margins looked more profitable.

In the slaughter cattle section of the Iowa Weekly Cattle Auction Summary report, several lots have been denoted as “return to feed” so far this year. These cattle would be other disappearance from feedlots that marketed them and placements for feedlots that put them back on-feed.

Other disappearance includes death loss. January’s wide temperature and precipitation gyrations stressed cattle and may have hiked feedlot death loss.

Disappearance is correct but residual may have more meaning

A fudge factor is an arbitrary mathematical term inserted into a calculation in order to arrive at an expected solution, or to compensate for errors, especially underestimation.

Cattle on Feed survey results are subject to mistakes in reporting. Cattle can be placed in and marketed out of feedlots every day. They can be hard to track.

Other disappearance is the residual that makes the number of cattle on feed at the beginning of the month plus placements minus marketings during the month equal to the number of cattle on feed at the beginning of the next month.

The more accurate the numbers are that producers provide to USDA for Cattle on Feed surveys, the smaller the other disappearance fudge factor should be, which should make market implications from Cattle on Feed reports more reliable.

 

Lee Schulz, extension livestock specialist, 515-294-3356, lschulz@iastate.edu

Author

Lee Schulz

extension economist
515-294-3356
View more from this author